How are Section 8 companies different from Trust and Societies?

Last Updated at: April 01, 2020
8122
How are Section 8 companies different from Trust and Societies

 

The framed draft rules must urgently add “Registered” Trusts and Societies with proven track record to be included in the rules and not just favour Section 8 companies alone.

 

Any organization donating its funds to welfare is not considered as profit organization. This includes schools, colleges, religious organizations, hospitals (NGO’s). Before deciding on how to start a NGO in India, it is important to understand the three general forms of NGOs namely Trust, Society and Section 8 Company. Here we have given all that one needs to know about NGO registration in India and how Section 8 company differs from Trust and Societies.

Trust registration

Trust is the first and oldest form of charitable organization. There are public trusts and private trusts mainly created for the benefit of family members or for known persons. A Private trust comes under the Indian Trust Act,1882. Indian Trust Act is not valid to the public trust. The public trusts are generally governed by law, except in states like Maharashtra, Gujarat etc. which have separate public trust acts.

Trust is easy to form and operate. But, as there is no regulatory oversight if any disputes arise the parties have to go to the court. A trust can be amended by the Managing Trustee or as per the recitals in the deed with prior approval from the Income Tax authorities.

Requirements for Trust registration

  1. A bill of electricity or water stating the address that needs to be registered.

2. The identity proof of at least two members of the company. The proof can be:

  • Voter Id
  • Aadhar card
  • Driving license
  • Passport

Society registration

Societies are comparatively considered to be in modern form. Seven individuals come together for a common resolution in a general body. They might be Indians or foreigners. More members can be added. Each general body member has one vote.

In many states, societies are governed by the Societies Registration Act, 1860 in its original or amended form. Governance and public filing vary from each state. In general, every society has to file a list of governing body members every year. Some states ask for the audited accounts filing also. This form generally works best for individuals with state-level objectives, who are interested in focusing on their formalities.

Register Your Business Now

Requirements for Society registration

  1. The name of the society.
  2. Address proof of the office.
  3. Identity proof of all the nine members which can be:
  • Voter Id
  • Aadhar card
  • Driving license
  • Passport

Section 8 Company Registration

These are the limited companies established under the Companies Act. The Government grants these companies an exclusive license under Section 8 Company. In a company which is limited by guarantee, there are no shares and hence there are no shareholders. The members of a company who are limited by guarantee are bound by a guarantee in the articles of association of the company, which requires them to pay the company debts up to a fixed sum. There are three main conditions for this.

1)   The company should form for the charitable trust

2)   Income and profits should be used towards these objects

3)   The company should not pay any dividend to its members

Requirements for registration-

  • The name of the company for approval.
  • Address proof of the office. It can be electricity or water bill or house tax receipt.
  • Identity proof of all the directors which can be:
    Driving license
  • Copy of passport
  • Voter ID
  • Aadhaar card

 4) The Memorandum of Association and Articles of Association of the Company.

Is Trust or Society or Section 8 Company a better NGO?

In India, an NGO for a charitable purpose can be registered under these three different authorities which are trust, society and section 8 company. A charitable purpose is generally defined under Section 2 (15) of the Income tax Act. Charitable purpose majorly includes relief to the poor, education, yoga, medical support, preservation of environment and monuments or places or objects of historical or artistic.

While selecting the form in which the NGO should be registered for non-profit making, the entity must evaluate the areas and objects of operation, individuals involved in its constitution and the sources of income to achieve its resolution. To facilitate the decision making a comparative analysis of all the forms of registration available for the non-profit making entities i.e. trust, society and section 8 company should be done.

Section 8 Company is a non-profit organization which has numerous deductions on taxes and other benefits. The benefits are availed under section 80G of the Income Tax Act, 1961. Stamp duty is also less for these companies as compared to other organizations.

The companies which are registered under Section 8 do not require much share capital. They can be easily funded from subscriptions or donations made to them.

Unlike the limited liability companies who are generally not allowed to transfer the ownership or title, but as per section 8 of the Income Tax Act, 1961 allows the transfer of ownership or title of both movable and immovable interest with no restrictions of any kind.

So, through this analysis registering a section 8 company is a better option compared to trust or society.

0

How are Section 8 companies different from Trust and Societies?

8122

 

The framed draft rules must urgently add “Registered” Trusts and Societies with proven track record to be included in the rules and not just favour Section 8 companies alone.

 

Any organization donating its funds to welfare is not considered as profit organization. This includes schools, colleges, religious organizations, hospitals (NGO’s). Before deciding on how to start a NGO in India, it is important to understand the three general forms of NGOs namely Trust, Society and Section 8 Company. Here we have given all that one needs to know about NGO registration in India and how Section 8 company differs from Trust and Societies.

Trust registration

Trust is the first and oldest form of charitable organization. There are public trusts and private trusts mainly created for the benefit of family members or for known persons. A Private trust comes under the Indian Trust Act,1882. Indian Trust Act is not valid to the public trust. The public trusts are generally governed by law, except in states like Maharashtra, Gujarat etc. which have separate public trust acts.

Trust is easy to form and operate. But, as there is no regulatory oversight if any disputes arise the parties have to go to the court. A trust can be amended by the Managing Trustee or as per the recitals in the deed with prior approval from the Income Tax authorities.

Requirements for Trust registration

  1. A bill of electricity or water stating the address that needs to be registered.

2. The identity proof of at least two members of the company. The proof can be:

  • Voter Id
  • Aadhar card
  • Driving license
  • Passport

Society registration

Societies are comparatively considered to be in modern form. Seven individuals come together for a common resolution in a general body. They might be Indians or foreigners. More members can be added. Each general body member has one vote.

In many states, societies are governed by the Societies Registration Act, 1860 in its original or amended form. Governance and public filing vary from each state. In general, every society has to file a list of governing body members every year. Some states ask for the audited accounts filing also. This form generally works best for individuals with state-level objectives, who are interested in focusing on their formalities.

Register Your Business Now

Requirements for Society registration

  1. The name of the society.
  2. Address proof of the office.
  3. Identity proof of all the nine members which can be:
  • Voter Id
  • Aadhar card
  • Driving license
  • Passport

Section 8 Company Registration

These are the limited companies established under the Companies Act. The Government grants these companies an exclusive license under Section 8 Company. In a company which is limited by guarantee, there are no shares and hence there are no shareholders. The members of a company who are limited by guarantee are bound by a guarantee in the articles of association of the company, which requires them to pay the company debts up to a fixed sum. There are three main conditions for this.

1)   The company should form for the charitable trust

2)   Income and profits should be used towards these objects

3)   The company should not pay any dividend to its members

Requirements for registration-

  • The name of the company for approval.
  • Address proof of the office. It can be electricity or water bill or house tax receipt.
  • Identity proof of all the directors which can be:
    Driving license
  • Copy of passport
  • Voter ID
  • Aadhaar card

 4) The Memorandum of Association and Articles of Association of the Company.

Is Trust or Society or Section 8 Company a better NGO?

In India, an NGO for a charitable purpose can be registered under these three different authorities which are trust, society and section 8 company. A charitable purpose is generally defined under Section 2 (15) of the Income tax Act. Charitable purpose majorly includes relief to the poor, education, yoga, medical support, preservation of environment and monuments or places or objects of historical or artistic.

While selecting the form in which the NGO should be registered for non-profit making, the entity must evaluate the areas and objects of operation, individuals involved in its constitution and the sources of income to achieve its resolution. To facilitate the decision making a comparative analysis of all the forms of registration available for the non-profit making entities i.e. trust, society and section 8 company should be done.

Section 8 Company is a non-profit organization which has numerous deductions on taxes and other benefits. The benefits are availed under section 80G of the Income Tax Act, 1961. Stamp duty is also less for these companies as compared to other organizations.

The companies which are registered under Section 8 do not require much share capital. They can be easily funded from subscriptions or donations made to them.

Unlike the limited liability companies who are generally not allowed to transfer the ownership or title, but as per section 8 of the Income Tax Act, 1961 allows the transfer of ownership or title of both movable and immovable interest with no restrictions of any kind.

So, through this analysis registering a section 8 company is a better option compared to trust or society.

0

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